NAFA member, Katharine Meyer, with GKG Law, discusses if your association can obtain assistance under the CARES Act.
On March 27, 2020, Congress passed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). The legislation included various provisions that assist tax-exempt organizations by providing programs and tax benefits to reduce some of the financial stress created by the COVID-19 pandemic. Unfortunately, one of the most popular parts of the Act, the Paycheck Protection Program (PPP), which makes low-interest loans available to cover payroll costs and then forgives or partially forgives those loans so long as the borrower meets certain requirements, is not available to 501(c)(6) organizations.
However, the CARES Act still provides assistance to associations. This relief is primarily limited to two categories: emergency lending in the form of Economic Injury Disaster Loans (EIDLs) and refundable payroll tax credits.
The Economic Injury Disaster Loan and Grant Program
The Economic Injury Disaster Loan Program (the Program) is a pre-existing Small Business Administration (SBA) loan program that is intended to alleviate economic injury to small businesses or private non-profits experiencing injury. In the past, these loans were commonly used after natural disasters, like Hurricane Sandy.
The CARES Act formally declared the COVID-19 pandemic to be a “disaster” under the Small Business Act. This declaration gave small businesses, including private non-profit organizations, the ability to access the Program. Additionally, the CARES Act provided the Program with $10 billion in additional funds to assist small business owners impacted by the outbreak.
Under Section 1110 of the CARES Act, private non-profit organizations that were in operation prior to January 31, 2020 are eligible for EIDLs up to $2,000,000, provided the loan proceeds are used for regular expenses, such as payroll and operating expenses, that could have been met but for the COVID-19 pandemic. In order to increase availability of EIDLs, the CARES Act waived certain EIDL Program eligibility requirements. Specifically, a borrower does not have to: (1) provide a personal guarantee for loans up to $200,000; (2) have been in business for at least one year prior to the onset of the disaster; or (3) be unable to obtain credit elsewhere. EIDLs are made directly by the SBA without involving a third-party lender. While these loans are ineligible for forgiveness, loan repayment can be deferred. EIDLs are offered to qualified non-profits at an interest rate of 2.75%.
One of the most attractive parts of the EIDL Program is the ability to obtain an immediate advance of cash. Private non-profit organizations in need of immediate funds may request a $10,000 emergency cash advance. Such funds shall be provided to them within three days of applying for an EIDL. If the application for the EIDL is denied, the $10,000 cash advance would not need to be repaid. This advance may be used for expenses such as paid sick leave for employees with COVID-19, maintaining payroll during business disruption or government shutdowns, rent or mortgage payments, or increased operational costs.
For more information, the COVID-19 Economic Injury Disaster Loan Application can be accessed here.
Employee Retention Credit
In an effort to encourage employers, including non-profit organizations, to keep employees on their payroll in the wake of the COVID-19 pandemic, the CARES Act included an Employee Retention Credit (ERC). The ERC is a fully refundable tax credit equal to 50% of qualified wages (including allocable qualified plan expenses) that employers pay their employees between March 13, 2020 and December 31, 2020. All tax-exempt organizations are eligible if they were operational during calendar year 2020 and either:
- the organization’s operations were fully or partially suspended due to a government order limiting commerce, travel or group meetings due to COVID-19 (such as a ‘stay at home’ order) or
- the organization had a reduction in revenue of at least 50% in the first quarter of 2020 compared to the first quarter of 2019. In determining an association’s decline in revenue, the organization must consider its entire operations.
If these criteria are met, an organization is entitled to a refundable payroll tax credit equal to 50% of qualified wages. The maximum amount of qualified wages taken into account with respect to each employee for all calendar quarters is $10,000, so that the maximum credit for qualified wages paid to any employee is $5,000.
We recommend that you review these options and determine if one or both could be beneficial to your organization.
For more information on how the CARES Act impacts your organization. Please contact Rich Bar (email@example.com) or Katie Meyer (firstname.lastname@example.org).
This article was originally published by GKG Law on April 6, 2020.